Deutsche Bank Swallows $4 Bln of Charges for Clean Up

Deutsche Bank plunged to its worst quarterly loss in four years on Thursday after it took nearly $4 billion in charges to try and draw a line under a slew of scandals and boost its balance sheet without asking shareholders for cash.

FRANKFURT, Jan 31 Deutsche Bank
plunged to its worst quarterly loss in four years on Thursday
after it took nearly $4 billion in charges to try and draw a
line under a slew of scandals and boost its balance sheet
without asking shareholders for cash.

Shares in Germany's largest lender hit their highest level
in nearly a year after it raised its capital levels closer to
European peers. But with so much uncertainty surrounding future
capital requirements for the industry, a rights issue, which
would dilute existing investors, remains a risk, Deutsche said.

"We have been very consistent. We have said we do not
believe it is in our shareholders' best interests. We have shown
that we are willing to take pain," Co-Chief Executive Anshu Jain
told a conference call when asked about a possible rights issue.

"This said, clearly, it is a very uncertain world. There is
a plan B. We will not rule out any option that is in the best
interest of Deutsche Bank."

"We saw regulators in the world come together in 2009. I am
concerned this regulatory cohesion will not last," said Jain.

Deutsche Bank cut its risk-weighted asset (RWA) base by 55
billion euros in the fourth quarter, helping to raise its core
tier one capital ratio under Basel III rules to 8 percent at the
end of 2012 from under 6 percent at the end of 2011.

RWAs are a bank's assets, usually loans, adjusted for the
likelihood of non-payment.

Changes to Deutsche's internal risk models helped drive the
reduction in RWA, which analysts said could come back to haunt
the bank if regulators harmonise the way banks estimate the
riskiness of their loan books.

"They might apply some minimum floor for RWAs, which would
cost Deutsche Bank a lot ... Their internal models could have to
be thrown out the window," said Espirito Santo analyst Andrew
Lim, who has a "sell" recommendation on Deutsche Bank shares.

Lim believes the bank needs between 15 billion and 20
billion euros of additional capital and warned the European
Central Bank (ECB), which takes over supervision of banks across
the region next year, might take a harder line on capital than
the German regulator, BaFin.

"I think they need that amount ... they might not be made to
raise it, they haven't been made to raise it by BaFin. The ECB
might take a much more stern stance and force them to raise
equity or reduce their balance sheet," he added.

Deutsche Bank's finance chief Stefan Krause however said the
bank felt comfortable with the way its measured risky assets.

Taking the Pain

The bank posted a fourth-quarter pretax loss of 2.6 billion
euros ($3.5 billion) partly due to a 1-billion-euro hit to cover
legal risks, including its potential exposure to an
industry-wide scandal involving the fixing of benchmark interest
rates.

It also announced a 1.9-billion-euro impairment charge on
underperforming assets, shifting them to a "non-core" division
for potential run down or sale.

Deutsche Bank shares were up 2.3 percent to 38 euros at 1420
GMT, their highest since March. The stock has lagged rivals over
the past 12 months, rising 17 percent compared with a 21 percent
increase for the benchmark Stoxx Europe 600 Banks Index.

Deutsche Bank is currently embroiled in a number of legal
disputes, including a decade-long legal battle over the 2002
bankruptcy of Germany's Kirch Media Group, a carbon trading
scandal, as well as being one of a dozen banks under official
investigation for allegedly rigging global benchmark interest
rates, including the London Interbank Offered Rate (Libor).

The bank said it was too early to say if allegations its
staff were involved in rigging Libor would be settled this year.

Switzerland's UBS and Britain's Barclays
paid a total of nearly $2 billion to settle such allegations.

Krause played down the legal problems, saying peers had
similar issues. "The tail of legal liabilities is fairly
typical," he told analysts. "The regulatory and litigation
environment remains challenging."

Deutsche Bank has increased its litigation reserves to 1.8
billion euros from 800 million euros, some of which is related
to the Libor probe.

Last year the bank said it would create a new "non-core"
division to house 125 billion euros worth of assets that either
eat up too much capital or fail to throw off sufficient profits.

The bulk of the impairment charges booked for these assets -
1.2 billion euros - was attributable to the bank's corporate
banking and securities unit (CB&S), its main investment banking
arm and traditionally its strongest performer.

CB&S posted a quarterly pretax loss of 548 million euros.

The bank had guided investors in December to weaker
fourth-quarter earnings. Analysts were, however, unsure how much
of the pain the bank would take in the quarter, so quarterly
forecasts diverged widely from a net loss of 538 million euros
to a net profit of 162 million euros.

The bank's net loss for the quarter was 2.2 billion euros.

Since the end of 2011, the bank has reduced headcount by
2,777, the results showed. it is in the midst of a restructuring
drive designed to achieve annual cost savings of 4.5 billion
euros by 2015.

($1 = 0.7370 euros)

(Additional reporting by Jonathan Gould in Frankfurt and Laura
Noonan in London; Writing by Carmel Crimmins; Editing by
Victoria Bryan and Mark Potter)